The general meeting decides on distribution, and shareholders are entitled in proportion to their paid contributions unless the memorandum provides otherwise. Profits may be paid only when statutory conditions are met and never if payment would cause insolvency. Interest on contributions and advances on profit distributions are prohibited. Shareholders must return unlawful distributions, and directors who approved them guarantee repayment.
Who decides to distribute profits?
Shareholders are entitled to a share of profits in proportion to their paid capital contributions, unless the memorandum provides otherwise (Section 123(1)). The right to payment itself arises only when the general meeting decides to distribute profits (Section 125(1)(b)). Until then, a shareholder has no due claim to enforce. The shareholders decide whether profits are distributed and how much.
What statutory limits apply?
Profits cannot be distributed blindly. The company may distribute profits or other own resources only if the conditions in Section 179(3) and (4) are met and it does not thereby cause its own insolvency (Section 123(2)). Mandatory establishment and replenishment of the reserve fund must also be considered (Section 124). The law expressly prohibits interest on capital contributions and advances on profit distributions. Returning shareholders’ contributions is also prohibited (Section 123(3)).
What if profits were distributed unlawfully?
Shareholders must return distributions made in breach of these rules. Managing directors who approved payment are jointly and severally liable as guarantors for repayment (Section 123(4)). An unlawful distribution is therefore more than an accounting problem: it is a personal risk for directors. The distribution decision should be prepared with a clear view of the financial statements and equity position.
How we can help
We prepare the distribution decision through our general meeting service. Profit-sharing rules can be adjusted in the memorandum of association, while our external legal department provides ongoing legal oversight of corporate matters.
This answer provides general information on the law as at 17 August 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.
